Mumbai: Chairman and managing director of Indian Oil Corp. LtdSarthak Behuria said in an interview that it was difficult to compute numbers at his firm due to a combination of inventory gains and slightly lower gross refining margins. Edited excerpts:

Where do you see GRM (gross refining margin) settling at the second half of this year?

Marketing losses: Indian Oil Corp. chairman and MD Sarthak Behuria says kerosene and LPG have continuously hammered profitability. Ramesh Pathania / Mint

So overall, it is very difficult to talk about the numbers because of the combination of inventory gain and slightly lower GRM. We may be just about the same levels as we have seen in the first six months.

Do you believe that this weakness in refining margins will persist into the next six months?

According to me, the prices of products, particularly gasoline, gas oil and LPG (liquefied petroleum gas) have already gone up by about $80-100 in the last month. We should see some kind of an increase in the prices of products, particularly going into the winter months.

Were there significant inventory gains in second quarter?

Not very much. We have gained because of lower interest cost and a little bit on the rupee, appreciation or weakening of dollar, compared with the previous year. As you know, minus the under-recovery on kerosene, LPG of over Rs7,000 crore, which we had to bear for the first six months that really dipped our profits to less than Rs300 crore for the second quarter.

What about marketing margins?

We started the year on positive margins as far as the product prices are concerned. However, currently there is still an under-recovery of almost Rs2.80 per litre on petrol and about Rs2.30 per litre on diesel. Kerosene and LPG have always been a very big under-recovery and continuously hammering the organization’s profitability. We are losing almost about Rs20 per litre on kerosene and about Rs200 per cylinder of LPG. So current under-recovery is about Rs75 crore a day. Looking at these numbers, I think if we have lost about Rs9-9.5 crore in the first six months.

At these rates, we will probably lose about Rs17,000-18,000 crore on all four products, taking a total toll of about Rs27,000 crore, out of which about Rs7,000-9,000 crore may come about from reimbursements by upstream companies. Therefore, we are looking at basically LPG, kerosene subsidy on under-recovery of about Rs18,000-19,000 crore for Indian Oil alone, and maybe about Rs28,000-30,000 crore for the industry. This is expected to come through bonds, which is based on what our ministry has been telling us at various forums.

By when do you expect to get the oil bonds?

We will need to have them in Q3 because otherwise profits will be lower and our liquidity projection is not particularly good. Borrowings are over Rs40,000 crore and it is certainly going to create some kind of a strain on the company’s working capital and investment. We have huge capital expenditure plans and our naphtha cracker plant is getting commissioned. All our quality upgradation projects are at various stages of completion. Huge payment commitments are involved. We have a capital expenditure commitment of Rs12,000 crore over and above our normal operating expenses. Hence, we currently hold about Rs24,000 crore worth of bonds, but the bonds are something that help us in improving our profitability and also gives us that much confidence of having it as an investment to be able to liquidate smaller trances at an appropriate time.